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Will My Student Loan Affect My Mortgage Application?

One of the first things to know about student loan debt is that it is not the same as normal debt. And by that we simply mean that student loan debt doesn't affect your credit history.

But - if it's not the same as normal debt and doesn't appear on your credit history, does that mean that it can't/won't affect a mortgage application?

The short answer is, no.

Since the 2014 Mortgage Market Review, the rules on lending are much, much stricter than they ever were before, and lenders now take a detailed and in depth look at your credit history, income and outgoings when you apply to them for credit. It was in this review that it was recommended that lenders treat student loan debt as a "committed expenditure", meaning that they include your student loan repayments in calculations regarding your affordability.

So whilst it's true that student loan debt doesn't appear on your credit history, lenders can and will still ask you about it should you come to apply for a mortgage.

But don't worry - a large student loan debt is not going to result in a black mark against your mortgage application in the same way a large credit card debt would. The reason why you'll be asked about your student loan when applying for a mortgage is because a lender will want to know how much you have to repay each month and how this would affect your monthly mortgage repayments - in simple terms, they're assessing your affordability.

How does repayment of a student loan work?

You only start to repay your student loan debt back once you earn over a certain threshold. Repayments are then also tiered based on your earnings, meaning people who have larger incomes pay more off of their student loan each month. However what lenders are interested in, is that regardless of what you pay off each month on your student loan, is that you are comfortable financially after this outgoing.

If you're left with very little in the bank after your student loan repayment and because of other outgoings, it's unlikely that your lender will approve your mortgage application. This is because you wouldn't be able to afford a monthly mortgage repayment on top of your student loan repayment and other financial commitments.

Therefore if you're looking to apply for a mortgage, don't worry so much about your student loan debt - you would never be expected to pay this sum off before submitting a mortgage application. However, do focus on any other debt you might have outstanding and aim to clear this off instead.

Start paying it off at least 6 months before you make your application, and if you can clear any debt off entirely, such as the balance on a credit card - do so. It will work in your favour, as any debt on top of your student loan repayment is far more likely to have a detrimental impact on your application as it will all affect your affordability.

In short, the fewer outgoings and financial commitments you have on top of your student loan repayments when you apply, the better!